Mongolia's high plains herders warily eye coal truck

UKHAA KHUDAG, Mongolia (Reuters) - A lone cement ribbon bisecting hundreds of miles of shale and scrub on the high plains of Mongolia's Gobi Desert may be a talisman or curse for nomadic herders that trace their lineage to the empire of Ghengis Khan.

Carved into the Gobi by the Hong Kong-listed Mongolian Mining Corporation (MMC), the 147-mile (245-km), two-lane road is due to open next month, allowing the company to speed up cargoes of coal to China from its expanding Ukhaa Khudag mine.

Ukhaa Khudag is not well-known but is situated on the northwest corner of Mongolia's Erdenes-Tavan Tolgoi, the world's biggest untapped coal mine with as much as 7.5 billion tons of reserves. Some bankers say plans for an IPO in 2012 to develop the prospect could fetch as much as $15 billion.

The freshly paved highway is one of the first glimpses of a mining boom that will transform Mongolia's fortunes. But many, including President Tsakhia Elbegdorj, are worried that mining has already put the country's fragile pastoral economy under strain and left a million nomads behind.

"Hundreds of rivers, streams and lakes have disappeared because of deforestation, climate change, and also partly because of irresponsible mining," Puntsag Tsagaan, the president's senior adviser, told Reuters.

"Our challenge is how to diversify our economy. I don't want my children and my grandchildren to live in a different country called Minegolia -- it has to be Mongolia. Therefore we have to manage the mineral wealth in a better way."

ENVIRONMENTAL IMPACT

The road will remove a major logistical hurdle for MMC.

"We will start using it next month and it will have a total throughput capacity of about 18 million tons per annum -- this year our total production will be 7 million tons so we no longer have logistics and transportation problems," said Adilbish Gankhuyag, MMC's chief financial officer.

It is also a key part of the company's commitment to protect the region's ecosystem, which has been damaged by hundreds of overloaded coal trucks churning up grazing land, said Shurka Baigalmaa, MMC's onsite manager at Ukhaa Khudag.

MMC is also committed to using the parched region's water supplies efficiently, with Baigalmaa saying that 95 percent of water used at the mine's washing plant would be recycled.

The open-cast mine is already 70 meters deep, and will eventually descend 300 meters, but she said the company would limit the impact by refilling exhausted seams using peat excavated from new mining areas further west.

But mining can never be completely clean. Clouds of sulfurous dust drift across the site and Baigalmaa said they had not yet built screens to help contain the problem.

Apart from the thirsty crows circling the mine's reservoir, there are few signs of life in South Gobi, where about 50,000 herders roam an area the size of England and Wales.

MMC said it was obliged to resettle people disrupted by mining construction, but many have abandoned the region already, frustrated by having to move their tents 20 times a year just to keep herds nourished.

Further north, at the Hustai National Park, 150 km (100 miles) west of Ulan Bator, people are also paying the price of mining, said Khagvadorj, a herder with a large family and dozens of horses.

Sipping fermented mare's milk in a crowded ger, a felt tent that many Mongolian nomads call home, Khagvadorj said dwindling pastures were having to support bigger and bigger herds as land concessions are handed over to miners.

"We are nomads, and we move from one place to another -- the mining stops us from moving around. Mining is not a good thing for us because it is spoiling our pastoral land."

SWITZERLAND OF THE TWENTY-FIRST CENTURY?

Tsagaan said mining, if managed properly, could bring in enough tax revenue to provide the education, infrastructure and prosperity that can turn Mongolia into "the Switzerland of the twenty-first century."

But turning a basic resource economy to high-end banking and manufacture center is a big leap for a country of 2.8 million people and a per capita income of $3,600 in 2010, and analysts say its future is more closely linked with China.

Mongolia, landlocked between Russia and China, exports all of its coal to its southern neighbor, China, and has long been wary of becoming a satellite valued only for its resources.

Chuluuntseren Otgochuluu, the director of Mongolia's Economic Policy and Competitiveness Research Center, an independent think tank, said mining had done little for Mongolia and was "far more integrated with the Chinese economy than the domestic economy."

Political leaders are sensitive to the issue and talk about "adding value" to raw material processing and developing other exports such as meat and other traditional rural industries.

"People talk about the resource curse, and we should learn from others, from the successes and from those who made mistakes," Prime Minister Sukhbaatar Batbold told Reuters.

But as increasing numbers of herders abandon the land and rush to the city, Mongolia is racing to devise the right mix of policies to preserve its old ways of life, said Clyde Goulden, a Mongolian ecology expert with the U.S. National Academy of Sciences.

"Herders tell us that mines are really causing a problem and that the water is deteriorating," he said. "There is no question there are herders giving up herding, and the question then is what are they going to do?"